Posts Tagged ‘ObamaCare’

Out With the Fed Mandate; In With State Mandates

Wednesday, November 13th, 2019

Once upon a time there was the federal mandate to have health insurance; per the US Supreme Court, a “tax.” Well, beginning with 2019 tax returns (filed in 2020) the federal mandate is no more. Unfortunately, tax professionals and taxpayers aren’t done with insurance mandates: Several states have implemented their own mandates.

Massachusetts, New Jersey, and the District of Columbia have their own mandates for the 2019 tax year (tax returns filed in 2020); Massachusetts’ mandate began in 2007. California, Rhode Island, and Vermont have implemented mandates for the 2020 tax year (tax returns filed in 2021).

If you are a resident of one of these states, we’ll be asking you about health insurance when we prepare your 2019 returns. Additionally, if you do receive insurance through the Exchange (e.g. and receive a Form 1095-A, you must provide a copy of the form to your tax professional.

There’s no reason for tax professionals to be in the health insurance field. But thanks to Obamacare, we are…and will be for the foreseeable future.

The Law Isn’t Fair, But You Have to Pay the Tax

Tuesday, August 29th, 2017

A California couple received an Advance Premium Tax Credit (part of the “Affordable Care Act,” aka ObamaCare). Through bureaucratic errors at Covered California, they’re unable to change their plan once they’re both employed to stop the credit, nor do they receive a Form 1095-A. It’s not as if they ever received the credits themselves; they went to insurers. The IRS assesses the repayment of the Advance Premium Tax Credit and assesses an accuracy-related penalty. The dispute ends up in Tax Court; do they have to pay the tax and penalty?

The facts of the case aren’t in dispute. The couple (for 2014) enrolled in a Silver plan based on lower income. When the wife took a job she promptly notified Covered California that their income increased; clearly, the credit needed to be adjusted. Months later, Covered California sent a letter to them…except the letter was never received.

What happened to that letter is unclear. The records from Covered California that were provided in this case are incomplete. But according to the records in evidence, “during Covered California’s first open enrollment period, Covered California was so busy that it was not uncommon that changes were not implemented.” What the record makes clear is that the [couple] made repeated efforts to get Covered California to take into account the change in household income, but it never did so. [footnote omitted]

They also notified Covered California of their address change; Covered California ignored that. They had an administrative hearing with the California Department of Health Care over Covered California’s errors; they lost on procedural grounds: “The Administrative Law Judge lacks jurisdiction to decide an issue involving an error on the part of Covered California for failure to recalculate the appellant’s eligibility for APTC after the appellant reported a change in income in January 2014.” They never received the Form 1095-A. They did note on their 2014 return that they had health insurance but they ignored the Advance Premium Tax Credit. The IRS assessed the tax (in the amount of the disallowed tax credit) and an accuracy-related penalty.

The couple correctly notes the Catch-22 they were caught in:

[The Commissioner argues] that if Petitioners are liable for the deficiency, then they would be no worse off financially than if the APTC had been terminated in early 2014. This is simply untrue and does not alter the fact that it was Covered California’s responsibility to ensure clients only received the Advance Premium Tax Credit for which they qualified. We would never have committed to paying for medical coverage in excess of $14,000 per year. We cannot afford it and would have continued to shop in the private sector to purchase the minimal, least expensive coverage or gone without coverage completely and suffered the penalties. * * *

* * * If we are deemed responsible for paying back this deficiency, it would be devastating and completely unjust. We hope and pray you are convinced that we have made every single effort to get Covered California to make proper adjustments to our reported income and subsequently to the Advance Premium Tax Credit we were qualified to receive without success. The whole purpose of the Affordable Care Act was to provide citizens with just that, affordable healthcare. This has been an absolute nightmare and we hope you will rule fairly and justly today.

Unfortunately, the Tax Court is not a court of equity:

In other words, the [couple] considered themselves to have been trapped in a health plan that they could not afford without the subsidy provided by the ACA. And they ask us to rule “fairly and justly” or, otherwise stated, equitably.

But we are not a court of equity, and we cannot ignore the law to achieve an equitable end. Although we are sympathetic to the [couple’s] situation, the statute is clear; excess advance premium tax credits are treated as an increase in the tax imposed. The [couple] received an advance of a credit to which they ultimately were not entitled. They are liable for the $7,092 deficiency. [citations omitted]

To add insult to injury, the couple were also charged with an accuracy-related penalty. Here, though, the law is on the couple’s side:

On the totality of the facts and circumstances, the [couple] acted reasonably and in good faith with respect to the underpayment of tax on their return. They did not receive a Form 1095-A showing the income they received in the form of an advance premium assistance credit, and they did not directly receive that income. They did not know nor should they have known that they had additional income required to be shown on their return, and consequently they are not liable for the accuracy-related penalty under section 6662(a).

This result is anything but equitable for the couple. They tried to have the credit adjusted but the bureaucracy ignored them. It just goes to show that when Ronald Reagan stated the following in 1986 he was dead-on accurate:

The nine most terrifying words in the English language are: I’m from the government and I’m here to help.

Case: McGuire v. Commissioner, 149 T.C. No. 9

While I Was Out…

Thursday, August 8th, 2013

Ten days off in a row should have been enough…but it wasn’t. In any case, here are some of the posts that the tax blogosphere had that might be of interest:

Jason Dinesen asked, “What’s the upside of preparer regulation for Enrolled Agents?” While at the National Association of Enrolled Agents annual meeting, I asked that question, too. The NAEA officials all swore it was a wonderful thing. The only thing I can deduce is that the RTRP program should lead to more Enrolled Agents. That said, I remain opposed to the RTRP program.

National Public Radio (NPR) noted that statistics show that the IRS targeting was worse for conservative groups than liberal groups. Republicans asked Democrats to bring just one liberal or progressive group to hearings that was impacted. To date, none have been found.

Jason Dinesen’s client who went through a nearly 28-month identity theft nightmare with the IRS finally received her tax refund.

The IRS released a draft of Form 8960. What’s that? It’s the new ObamaCare 3.8% Investment Tax. It does appear that the IRS smartly didn’t link the form to Other Income (as I previously noted, gambling income is not subject to this tax). As Paul Neiffer reported, there are only 33 lines to calculate this tax. As I tell my friends, I have lifetime employment…for all the wrong reasons.

Joe Kristan has a report on an interesting court decision: Can suing be your trade or business? The court held that it could be.

Meanwhile, the Tax Court held that a business owner whose business made a whopping $877 must take a salary of nearly $31,000! Joe Kristan has more on what is a very raw deal for the taxpayer. I do agree with Joe’s conclusion: “When advancing and withdrawing funds from an S corporation, be sure to generate the appropriate prissy paperwork.” If you have a loan, make it look like a loan: Charge interest and record it! It’s possible that with good paperwork the owner wouldn’t have received such a ridiculous result.

“An Excercise in Bureaucratic Futility”

Friday, July 19th, 2013

Earlier this week I mentioned to you the ridiculous Patient Centered Outcomes Trust Fund Fee that HRAs must pay. I called it the most ridiculous tax ever. Jason Dinesen posts a real example of what he went through for one client.

While Jason’s example is dead-on accurate (I know, I went through the same thing for a client), I think he misses the most futile portion of the exercise. Consider what the IRS will bring in as revenue from this tax from small businesses. Note that most small businesses use health insurers; the health insurance companies pay based on the total number of individuals covered. The small business owners only pay for the HRA; these usually cover the owner, his or her spouse, and children. That should make the average revenue from small businesses to be about $3. Now, let’s add up the costs that the IRS will face:

– Opening the mail;
– Processing the checks (making sure they are credited to the correct excise tax and correct account);
– Depositing the checks;
– Processing the Form 720 excise tax returns;
– Sending out notices to filers who make mistakes; and
– Cost to respond to replies to notices.

Even with full automation in opening mail (which the IRS has), almost each of these steps will cost more than $3. Taken together, the cost for this tax is far more than what the revenue will bring in.

Now let’s look at this from the standpoint of the client. Let’s assume that the bill to the client is $100. Add in the cost of the tax of $3, administrative costs (I’ll be generous and call this $2), and the total cost to the client is $105. That’s $105 out of a business’s net income for a completely useless exercise in bureaucratic futility.

This tax is Exhibit A in why ObamaCare is unpopular, unworkable, and insane.

The Most Ridiculous Tax Ever

Monday, July 15th, 2013

Suppose you have a Section 105 Health Reimbursement Arrangement. Do you know that you have a tax deadline approaching in just 16 days? Jason Dinesen has an excellent post on this.

A Health Reimbursement Arrangement (HRA) is a common method for a sole proprietor to provide health insurance to himself and his spouse. He hires his spouse, and then (in many states) qualifies for health insurance. This allows for what is called the HRA to be put in force.

Under ObamaCare, every self-insured health plan must pay a $1 per covered individual “Patient Centered Outcomes Trust Fund Fee.” There is no exemption for small plans. Thus, if you have an HRA, you must file Form 720 and pay $1 per person covered–probably an average tax collected of $2. This is due with the second quarter excise tax filings (July 31st) on an annual basis. I have a couple of clients who use this; they must complete Form 720 and pay…$2 each.

How much will it cost the IRS to administer this for the HRAs? It doesn’t take a brain surgeon to know that it’s a lot more than the average $2 tax paid. The form must be processed. Just cashing the check will cost the government more than $2.

It’s yet another way that ObamaCare is unpopular, unworkable, and insane.